Etihad Airways – Structured Financing Transactions with ADCB

by Adam Boukadida, Deputy Treasurer, Etihad Airways

Etihad Airways has a proud tradition of innovation and excellence, which extends across its business. Treasury is no exception, as illustrated in the team’s recent structured finance transactions which it recently concluded with the support of partner bank Abu Dhabi Commercial Bank (ADCB). This article provides more information on these transactions, and the outcomes for the business.

Transaction detail

Etihad Airways recently completed two structured transactions which were unique for an international business. The two transactions were:

A first ever transaction in the aircraft financing market for Cash Advance cum Forward Sale & Leaseback of 2017 deliveries; USD300m advance on the back of stand-by letters of credit (SBLCs) issued by ADCB;

Both of these transactions were extremely time-critical and involved ADCB’s engagement beyond the end of year to understand third party requirements, both commercially and legally.

ADCB engaged proactively with lawyers and lessors to draft mutually acceptable language that addressed the risk of the forward sale & leaseback transaction in a manner that protects both Etihad and lessors in a cost effective fashion. ADCB’s high credit rating provided lessors with the required assurance to address any credit risk concerns. Etihad was, therefore, in a position to accelerate USD300m in cash flow which under a conventional sale & leaseback arrangement would have been received piecemeal based on 2017 deliveries.

For the AirBerlin transaction, ADCB lent AED726m directly to AirBerlin, with the support of an EY corporate guarantee. This was delivered in record time with a plain vanilla structure, compared to another financial institution that was less willing to take credit risk on AirBerlin and wanted first recourse to EY.

Transaction execution

The end-to-end execution we experienced was exceptional. We set up SBLCs in favour of our counterparty in each case, which was a smooth and rapid process, and concluded at a competitive rate without diluting or jeopardising services. SBLCs involve a number of different parties, so it was very helpful to work with a strategic partner that was able to co-ordinate the process. Furthermore, as our trade finance requirements are international in scope, ADCB’s international footprint and network was invaluable.

What is a stand-by letter of credit?

A stand-by letter of credit (SBLC) is a bank guarantee in the form of a documentary credit that is issued by a bank on behalf of a client as a last resort in the event that the client is in breach of a contractual commitment to a third party, and is payable on first demand by the beneficiary. It can be used for a variety of purposes, such as guarantee against a purchaser or importer’s failure to pay (e.g., payment or advance payment guarantee), or a supplier’s or exporter’s failure to perform under an agreement (e.g., performance guarantee or tender guarantee).